Monday, January 14, 2013

On Debt Ceiling Obama Speaks Loudly But Carries No Stick

Well, that really did it. Obama has loudly declared that he will not negotiate with Congress over the debt ceiling. He was riding high with the trillion dollar platinum coin gambit, only to hand it off to Treasury, which has now nixed it in conjunction with the Fed, even though Laurence Tribe had declared it legal. Tribe had previously declared the other obvious weapon Obama could use against Congress blackmailing him into cutting entitlement program benefits unconstitutional, that is, for Obama to declare the debt ceiling unconstitutional, which it is. But now Obama is left with only some vague possibility of handing out some IOUs, which look less credible than either of the two now gone, or simply cutting a bunch of programs liked by the GOP in order to make interest payments on the debt if the ceiling is not raised. His aides are claiming this gives him a strong hand because the GOP will be blamed if there is a default, but that is not of much comfort to those who are hoping to get jobs in an economy that for the moment is still growing, but might not be if there is a default.

4 comments:

Hey Barkley, nice post,,,do you think the DCers have any fair perception of the consequences of default, moratorium or rescheduling of debt in the [still] hegemonic currency e.g., at minimum, international reputational, financial and trade affects while still in the midst of global stagnation? Do we have some inter-imperialist action kicking into higher gear.

''Since 1929, the Bank of England has consistently used [the so-called 'open market'] and maintained the lowest possible rates prevailing on the London market to increase its purchases of government securities, money market abundance. ...

In other words, during the two years 1929-1930, the Bank of England has consistently paralyzed movement that tended to adjust the balance of payments needs arising from the French economic policy. Therefore, the British economy could start to provide the resources necessary for the foreign city to continue its work[...] The balance of payments is always found stretched to the limit of its possibilities, no longer having any reservations available, so no safety margin.

By then, the country has been led to an extremely vulnerable situation in which the slightest unexpected jolt, the slightest financial mistake [...] could and should produce irreparable disaster.''[Jacques Rueff, 1931]

I know that Britain went off the [resurrected] gold standard in '31 but- did the above contribute to*(technical) default in '32 [while further worsening trade].

Re: "...not of much comfort to those who are hoping to get jobs in an economy that for the moment is still growing, but might not be if there is a default."

John Bellamy Foster drew attention to the writing of Sweezy and Magdoff. They, in turn, wrote of structural faults in our era of global monopoly capitalism. The enormous and rising surplus accumulated by monopolistic corporations struggles to find investment outlets. To head off economic stagnation debt has been expanded domestically and internationally since about 1970.

This expansion of debt has caused a "long-run decline in liquidity" which appears to have now reached a critical point.

The US can continue to increase its fiscal deficit but with each extra dollar of debt there is less and less return in the general economy. Diminishing returns...Interest on the immense sums being borrowed squeezes out other government spending. If more and more debt is created (money is debt) inflation also squeezes out real spending.

Expect destructive feedback loops:"the [US] Federal government borrowed and spent a staggering $6 trillion in a mere four years (2008-2011), while the GDP has yet to return to 2007 levels when measured in real (inflation-adjusted) dollars...."